Fair Work Act 2009

ss.400A, 401 and 611 - Application for costs orders

Application for costs under ss 400A, 401 and 611 - application dismissed

[1] This decision concerns an application lodged on 25 November 2020 by Fictiv Pty Ltd (company) for costs orders against Ms Lidia Lucisano pursuant to s 400A and s 611 of the Fair Work Act 2009 (Cth) (Act), and against her representative, Hutchinson Legal Pty Ltd (Hutchinson), pursuant to s 401 of the Act.

[2] Ms Lucisano was summarily dismissed from her employment because of a series of messages she sent to a client of the company in which she made disparaging remarks about its director, Mr Andy Singh. Ms Lucisano lodged an application under s 394 of the Act, in which she contended that her dismissal was unfair. She did not dispute sending the messages in question to the client but claimed that she was simply telling the client the truth, including that Mr Singh had lied to the client. The company contended that the dismissal was consistent with the Small Business Fair Dismissal Code (Code), and that in any event it was not unfair.

[3] In a decision dated 11 November 2020,[1] I determined that the dismissal of Ms Lucisano was consistent with the Code and dismissed her application. The background to Ms Lucisano's unfair dismissal application is set out in my decision of 11 November 2020 at [3] to [10]. My factual findings on contested points of evidence are recorded at [11] to [13]. And my consideration of the application is found at [20] to [34]. I note that the costs application was filed within 14 days after the determination of the relevant matter, as required by s 402.

[4] The company's application for costs against Ms Lucisano and Hutchinson relies in part on correspondence sent by the company's lawyers to Hutchinson prior to the proceeding and following the decision of 11 November 2020. On 7 October 2020, the company's lawyers sent a letter to Hutchinson stating that the application had no reasonable prospect of success given the overwhelming evidence against Ms Lucisano, and that if the application was not withdrawn by 9 October 2020, the company would rely on the letter in support of an application for costs against Ms Lucisano and Hutchinson.

[5] On 5 November 2020, the company's lawyers sent a further letter to Hutchinson, stating that the dismissal of Ms Lucisano was consistent with the Code and therefore had no reasonable prospect of success, and that if the application was not withdrawn by 6 November 2020, the company would rely on the second letter in support of an application for costs.

[6] On 16 November 2020, the company's lawyers wrote against to Hutchinson, referring to the two previous letters and the decision of 11 November 2020. It stated that, if Ms Lucisano did not pay the company's 'estimated costs' of $12,000 incurred in defending the application by 17 November 2020, the company would make an application for costs.

[7] The company's costs application has three dimensions. First, it contends that Ms Lucisano's application had no reasonable prospect of success, and that this should have been reasonably apparent to Ms Lucisano. It says that, either for this reason, or because the application was made vexatiously or without reasonable cause, the Commission has power under s 611 of the Act to award costs against Ms Lucisano. Secondly, the company contends that Ms Lucisano's failure to discontinue her application after receiving the first two costs letters from the company's lawyers constituted an unreasonable act or omission in connection with the conduct or continuation of her application, and that the Commission may therefore award costs against her under s 400A. Thirdly, the company submits that Hutchinson encouraged Ms Lucisano to start or continue the matter when it should have been reasonably apparent that she had no reasonable prospect of success. Alternatively, it says that there was an unreasonable act or omission by Hutchinson, either by failing to advise Ms Lucisano that the application had no reasonable prospect of success, or by failing to advise her to discontinue the proceeding. The company says that in these circumstances the Commission has power to award costs against Hutchinson and should do so.

[8] The company contended that a large component of Ms Lucisano's case was based on her argument that the dismissal was unfair because she had merely told the client the truth about Mr Singh's dishonesty concerning the company's work for the client, but that she provided no evidence to substantiate her claim, and that in any event, this would not have justified her behaviour. The company further contended that Ms Lucisano also failed to substantiate her other claims, namely that Mr Singh had been avoiding her, that the client was unhappy with the company's service, that she had told Mr Singh about the client's concerns regarding the work, and that Mr Singh's decision to dismiss her was capricious and spiteful. It said that Ms Lucisano's argument that the messages she sent to the client were private was also clearly incorrect.

[9] The company further submitted that Ms Lucisano's case had not engaged with the company's jurisdictional objection that the dismissal was consistent with the Code, and that her contention that no duty of good faith is implied into employment contracts was wrong and rejected by the Commission. Also rejected were Ms Lucisano's contentions that her conduct had been simply clumsy and negligent, and that she had not been afforded a reasonable opportunity to respond at the termination meeting on 3 August 2020.

[10] The company contended that it should have been reasonably apparent to a reasonable person that Ms Lucisano's application had no real prospect of success in the first place, and that she should reasonably have discontinued it after the company's lawyers sent the first two costs letters, but instead she unreasonably instructed her lawyers to press the application.

[11] As to the role of Hutchinson, the company says that an experienced practitioner acting prudently would have advised the applicant either not to make the application at all, or to discontinue it, at the latest by the time the applicant's submissions and evidence were due. It says that Hutchinson caused costs to be incurred by the company, either because it encouraged Ms Lucisano to make or continue her application when it should have been apparent that the application had no reasonable prospect of success (s 401(1A)(a)), or because it acted unreasonably by failing to advise Ms Lucisano to withdraw the application or advise her that it had no reasonable prospect of success (s401(1A)(b)).

[12] The company submitted a bill of costs prepared by a costs consultant identifying a claimable amount of $12,388, inclusive of disbursements, in respect of which it asks the Commission to make orders against Ms Lucisano and Hutchinson, or either of them.

[13] Ms Lucisano and Hutchison submitted that at all times the application had at least some reasonable prospect of success. They contended that Ms Lucisano conscientiously believed that she had been dismissed in circumstances that were unfair, due to procedural deficiencies and because of what she considered to be the disproportionality of immediate dismissal to her conduct. They further contended that there was no unreasonable act or omission on the part of Ms Lucisano or Hutchinson in connection with the conduct or continuation of the matter, and that the Commission's conclusions in respect of the application were based at least in part on factual findings on contested matters, including in respect of Ms Lucisano's belief that Mr Singh had not been truthful with the client about the company's work on its project. They contended that the Commission's ultimate assessment of the contested evidence was not the only reasonably foreseeable outcome, and that different findings might have led to a different result.

[14] Ms Lucisano and Hutchison further submitted that the company's application for costs proceeded on the assumption that the conclusions reached by the Commission in the decision of 11 November 2020 were the only reasonable conclusions that could have been reached, when in fact reasonable minds might differ in the assessment of various elements of the application. Moreover, the Commission's conclusions and findings were made only after a forensic examination of the contested facts.

[15] As to the application under s 400A, Hutchinson submitted that there was no evidence that it had 'encouraged' Ms Lucisano to continue her application, or that it had caused costs to be incurred by the company by any such encouragement, or by any failure to advise her to withdraw the claim.

[16] The parties requested the Commission to determine the application on the papers, save that the respondents asked to be heard in relation to the quantum of any costs to be ordered.

[17] I will first consider the costs application as it relates to Ms Lucisano, which is brought under ss 611 and 400A.

[18] Section 611(2) provides that the Commission may order a person to bear some or all of the costs of another person in relation to an application if the Commission is satisfied either that the first person made the application 'vexatiously or without reasonable cause' (s 611(2)(a)), or that it should have been 'reasonably apparent' to the person that the application had 'no reasonable prospect of success' (s 611(2)(b)).

[19] I reject the company's contention that Ms Lucisano brought her application vexatiously or without reasonable cause. I consider that Ms Lucisano was genuinely aggrieved at the company's decision to dismiss her and that she sought to be compensated for what she believed to have been the unfairness associated with the end of her employment.

[20] Further, although I consider that Ms Lucisano's application was weak and had limited prospects of success, I would not characterise it as having 'no reasonable prospect of success'. This sets a high bar for an applicant for costs orders under s 611. Full Bench authority has established that a conclusion that an application had no reasonable prospect of success should only be reached with great caution and in circumstances where the application is 'manifestly untenable or groundless or so lacking in merit or substance as to be not reasonably arguable.'[2]

[21] In my view, Ms Lucisano's application had at least some reasonable prospect of success. If it had been established that Mr Singh had indeed been untruthful to the client, it is possible that Ms Lucisano's application could have succeeded, at least to some degree. The company submitted that dishonesty on the part of Mr Singh would not have excused Ms Lucisano's behaviour, because the right thing to do would have been for Ms Lucisano to speak directly to Mr Singh about the matter. That may be so. But misconduct on the part of an applicant does not preclude the possibility of a finding that the dismissal was unfair. The Act squarely recognises this, because s 392 requires the Commission to reduce the amount of any compensation ordered in respect of an unfair dismissal if it is satisfied that the misconduct of a person contributed to the employer's decision to terminate the employment.

[22] In the decision of 11 November 2020, I found Ms Lucisano's claim that Mr Singh was lying to her and the client to be unsubstantiated. However, I accepted that Ms Lucisano believed that there were inconsistencies in what Mr Singh had said, and that she thought that he had been dishonest. There was at least some reasonable prospect that Ms Lucisano's belief about Mr Singh's action might have been borne out. Ms Lucisano gave evidence of prima facie inconsistencies in what Mr Singh had said. As it transpired, Mr Singh proved to be a convincing witness. I accepted his denials and found that the allegations against him were unsubstantiated. But this finding was not inevitable. In Re Joseph Michael Kanan v Australian Postal and Telecommunications Union,[3] a case referred to in the company's submissions, Wilcox J stated that one way of testing whether a proceeding had been brought without reasonable cause was to consider whether, 'upon the facts apparent to the applicant at the time of instituting the proceeding', there was no substantial prospect of success. One of the facts apparent to Ms Lucisano at the time of making her application was that Mr Singh had been untruthful to the client. This was a contested fact, which I ultimately resolved in favour of Mr Singh. However, if it had been established that Mr Singh had been dishonest to the client, I consider that it was within the realm of reasonably possible outcomes that the Commission might have decided that Ms Lucisano's summary dismissal was unfair. This would likely have resulted in any compensation order being limited to an amount corresponding to Ms Lucisano's notice period.

[23] The company contended that Ms Lucisano lodged a very weak and ill-conceived case that should not have progressed to arbitration, and that the Commission's decision of 11 November 2020 recognised as much in concluding that the company plainly had reasonable grounds to believe that the conduct in question warranted immediate dismissal (at [20]); that Ms Lucisano's actions constituted serious misconduct warranting summary dismissal (at [26]); and that her conduct was grave, such that summary dismissal was a proportionate response (at [33]). The company considers that these conclusions are demonstrative of the application having always lacked reasonable prospects of success. However, these conclusions must be read in the context of my finding that Ms Lucisano's allegations about Mr Singh's dishonesty to the client were unsubstantiated. If these allegations had been found to be true, there would have been at least some doubt as to whether the company could have believed on reasonable grounds that the conduct was sufficiently serious to justify immediate dismissal, and hence doubt as to whether the dismissal was consistent with the Code; and if it was not, there would have been at least some doubt as to whether summary dismissal was a proportionate response within the framework of s 387. I reject the costs application insofar as it is brought under s 611.

[24] Section 400A of the Act provides that the Commission may make an order for costs against a party to an unfair dismissal proceeding if it is satisfied that the party 'caused those costs to be incurred because of an unreasonable act or omission ... in connection with the conduct or continuation of the matter.'

[25] The unreasonable act or omission of Ms Lucisano was said to have been her failure to discontinue the application in the face of the company's defence of its position, reflected in its filed submissions and evidence, and the company's explanation to Ms Lucisano of the costs it expected to incur if the application was not withdrawn. However, in my view the company's contentions in respect of s 400A advance no further than its contentions in relation to s 611. Ms Lucisano had a weak case, but not one that had no reasonable prospect of success. Her case was no weaker following the filing of the company's materials than it was beforehand. It was not the case that the company's materials revealed some critical defect in Ms Lucisano's application, in the face of which it was unreasonable for Ms Lucisano not to discontinue the matter. Nor was it the case that the company made an offer of settlement which on any reasonable view Ms Lucisano ought to have accepted. I am not satisfied that there was an unreasonable act or omission of Ms Lucisano in connection with the conduct or continuation of the matter.

[26] This brings me to the company's application under s 401 for costs to be awarded against Hutchison. The threshold requirements of s 401(1) have clearly been met. Section 401(1A)(a) then provides that the Commission may make an order for costs against a representative if it is satisfied that the representative caused costs to be incurred 'because the representative encouraged the person to start, continue or respond to the matter and it should have been reasonably apparent that the person had no reasonable prospect of success in the matter'. Section 401(1A)(a) is concerned with what should have been reasonably apparent to the representative, rather than the relevant party (contrast s 611(2)(b)), which in some cases might result in a costs order being imposed on a representative but not the relevant party. However, I have concluded above that Ms Lucisano's application was not one that had 'no reasonable prospect of success'. I consider this to have been the case both from the view point of what should have been reasonably apparent to Ms Lucisano and to Hutchinson. Depending on the Commission's assessment of the evidence, the application had some reasonable prospect of success, albeit within a likely compensation range of modest parameters.

[27] Section 401(1A)(b) provides that the Commission may make an order for costs against a representative if it is satisfied that the representative caused costs to be incurred 'because of an unreasonable act or omission of the representative in connection with the conduct or continuation of the matter'. In my view, the analysis of the costs claim against Ms Lucisano under s 400A is generally applicable to the company's costs claim against Hutchinson under s 401(1A)(b). Although the unfair dismissal application was weak when it was lodged, nothing subsequently occurred in the proceeding that made it unreasonable for Hutchinson not to advise Mr Lucisano to discontinue the application.

[28] The discretion to award costs under ss 400A, 401 and 611 is subject to strict conditions. Although Ms Lucisano's application was not a strong one, I am not satisfied that these conditions are established in this case. I therefore have no jurisdiction to award costs under these provisions against Ms Lucisano or Hutchinson. The application for costs is dismissed.

[1] [2020] FWC 6045

[2] Ryman v Thrash Pty Ltd t/a Wisharts Automotive Services [2016] FWCFB 1638 at [4]

[3] [1992] FCA 366 at [29]

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